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Concentration Risk Captive Simplification

Market

Calculate the Concentration Risk Capital instantly.

€
€
€

Concentration Risk Capital

€1 224 000

Base Relative Excess Exposure Threshold

3.0%

Concentration Factor

12.0%

1Step 1

Base Relative Excess Exposure Threshold

Base Relative Excess Exposure Threshold=3\textit{Base Relative Excess Exposure Threshold} = 3
2Step 2

Concentration Factor

Concentration Factor=12\textit{Concentration Factor} = 12
3Step 3

Eligible Pooling Exemption

Eligible Pooling Exemption=Exemptible Intra-Group Pooling Exposure×Legally Enforceable Offset Terms Exist (0/1)\textit{Eligible Pooling Exemption} = \textit{Exemptible Intra-Group Pooling Exposure} \times \textit{Legally Enforceable Offset Terms Exist (0/1)}
4Step 4

Adjusted Calculation Base

Adjusted Calculation Base=max⁡(0,Total Concentration Calculation Base−Eligible Pooling Exemption)\textit{Adjusted Calculation Base} = \max(0, \textit{Total Concentration Calculation Base} - \textit{Eligible Pooling Exemption})
5Step 5

Effective Threshold

Effective Threshold=Base Relative Excess Exposure Threshold×1−Exposure Is an Article 106 Special CQS2 Case (0/1)+15×Exposure Is an Article 106 Special CQS2 Case (0/1)\textit{Effective Threshold} = \textit{Base Relative Excess Exposure Threshold} \times 1 - \textit{Exposure Is an Article 106 Special CQS2 Case (0/1)} + 15 \times \textit{Exposure Is an Article 106 Special CQS2 Case (0/1)}
6Step 6

Concentration Limit

Concentration Limit=Adjusted Calculation Base×Effective Threshold\textit{Concentration Limit} = \textit{Adjusted Calculation Base} \times \textit{Effective Threshold}
7Step 7

Excess Exposure

Excess Exposure=max⁡(0,Single-Name Exposure−Concentration Limit)\textit{Excess Exposure} = \max(0, \textit{Single-Name Exposure} - \textit{Concentration Limit})
8Step 8

Concentration Risk Capital

Concentration Risk Capital=Excess Exposure×Concentration Factor\textit{Concentration Risk Capital} = \textit{Excess Exposure} \times \textit{Concentration Factor}

Understand the Concentration Risk Captive Simplification

Overview

This calculator implements the simplified capital requirement for Market Risk Concentration for captive insurance undertakings within the Solvency II standard formula.[1] This simplified approach is intended for captive undertakings where the standard-formula calculation is disproportionately complex relative to the risk. The requirement is defined as the economic capital necessary to provide a 1-in-200 year level of protection using simplified exposure-based proxy factors. [2]

Input Terms

  • Exposure Value (E_i): The total value of assets exposed to a single counterparty or group of related counterparties.[1]
  • Credit Quality Step (CQS): The regulatory rating step used to determine the applicable risk factor for that concentration.

Technical Rationale

The Concentration Risk Captive Simplification is calibrated to a 99.5% confidence level over a one-year horizon. It captures the sensitivity of the undertaking’s basic own funds to an adverse accumulation of risks related to its largest counterparties. Unlike a full article-by-article revaluation, which involves complex threshold calculations and risk-weighting across many asset types, this simplification uses a direct closed-form expression for captive insurers.[1]

This method is governed by the principle of proportionality (Article 109), ensuring that captive undertakings can calculate their solvency capital requirements without the operational burden of a full-scale concentration engine. The result represents the simplified concentration risk component before diversification in Market Risk.

Important Notes

  • Captive Scope: This simplification applies only to captive insurance undertakings that meet the specific regulatory criteria for its use. Non-captive insurers must use the standard formula concentrated risk module.
  • Look-Through Approach: Per Article 84 of the Delegated Regulation, insurers must "look through" investment funds to the underlying issuers so the simplified single-name concentration base is measured on the real issuer basis rather than at the fund-wrapper level.[3]
  • Gross vs. Net SCR: This simplification estimates the standalone Market Concentration Risk SCR. Solvency II risk is only finalized as a net impact on Basic Own Funds after diversification in Market Risk, then within BSCR, and after the top-level LAC TP and LACDT adjustments.
  • Regulatory deviation: Material deviation from the standard-formula assumptions or from the conditions supporting this simplification may support a capital add-on or a move toward a fuller or internal-model approach where justified.[4]
  • Reporting: The simplified result is intended to support the corresponding standard-formula component feeding the S.25.01 standard-formula reporting view, not to replace the connected article-chain result where the simplification is not justified.[5]

Sources

  1. Delegated Regulation (EU) 2015/35 - Art. 105 (Market risk concentration simplification) - EUR-Lex
  2. Directive 2009/138/EC - Art. 101 (99.5% VaR / 1-in-200 calibration) - EIOPA
  3. Delegated Regulation (EU) 2015/35 - Art. 84 (Look-through approach) - EIOPA
  4. Directive 2009/138/EC - Art. 37 (Capital add-on) - EIOPA
  5. Commission Implementing Regulation (EU) 2015/2450 - QRT S.25.01 - EUR-Lex

Default values are illustrative sample inputs for navigation, training, and QA. Replace them with controlled data before using the result in capital analysis, governance, or reporting decisions.